Genetic studies have established that heparan sulphate proteoglycans (HSPGs) are required for signalling by key developmental regulators, including Hedgehog, Wnt/Wg, FGF, and BMP/Dpp. Post-synthetic remodelling of heparan sulphate (HS) by Sulf1 has been shown to modulate these same signalling pathways. Sulf1 codes for an N-acetylglucosamine 6-O-endosulfatase, an enzyme that specifically removes the 6-O sulphate group from glucosamine in highly sulfated regions of HS chains. One striking aspect of Sulf1 expression in all vertebrates is its co-localisation with that of Sonic hedgehog in the floor plate of the neural tube. We show here that Sulf1 is required for normal specification of neural progenitors in the ventral neural tube, a process known to require a gradient of Shh activity. We use single-cell injection of mRNA coding for GFP-tagged Shh in early Xenopus embryos and find that Sulf1 restricts ligand diffusion. Moreover, we find that the endogenous distribution of Shh protein in Sulf1 knockdown embryos is altered, where a less steep ventral to dorsal gradient forms in the absence of Sulf1, resulting in more a diffuse distribution of Shh. These data point to an important role for Sulf1 in the ventral neural tube, and suggests a mechanism whereby Sulf1 activity shapes the Shh morphogen gradient by promoting ventral accumulation of high levels of Shh protein